Nationalization and Its Discontents

How Low Energy Prices Could Push Latin America to Privatize Its Energy Sector

Latin America is on the brink of a new era in oil politics. Over the past century, resource nationalism—when governments assert control over their nation’s natural resources—has ebbed and flowed, often in line with movements in global oil prices. In the 1990s, historically low oil prices created room for privatization in many of Latin America’s oil industries. After that, when oil prices rose again, the pendulum swung back toward state control.

But as global oil prices collapsed over the last two years, regional governments have started to lose their leverage in the energy industry. To attract international investors, they must offer increasingly favorable terms, which means ceding more of their own control. Meanwhile, governments that have banked on using the profits from high prices of oil and other commodities to redistribute wealth and gain popularity are at a loss. Without this revenue, these governments have delivered fewer improvements in living conditions and less financial security. As oil prices plunge, citizens appear primed for a change. Many of the region’s incumbent politicians – several of whom are leftist leaders that favor more state control over the oil industry, such as Venezuelan President Nicolas Maduro and Ecuadorean President Rafael Correa —are thus bearing the brunt of the economic slump.

In other words, the stars are aligning for a reopening of the oil industry and the flourishing of market-oriented economic policies.

WHO'S IN CONTROL

Since the days of Standard Oil, John D. Rockefeller’s U.S. corporate oil monopoly, governments have steadily increased their control over the oil industry’s operations and revenues. In the 1970s, national oil companies controlled less than 10 percent of the world’s oil and gas reserves. Today, they control about 90 percent.

Latin America has been at the forefront of the movement toward resource nationalism starting with Mexico, which until 2013 had the world’s only complete state monopoly on the ownership of its oil reserves. As oil prices rose from $10 per barrel in the late 1990s